The CII feels the rate cuts will send the right signals to the bourses.
The chambers have welcomed the credit policy pronouncements. The Confederation of Indian Industry (CII) president Sanjiv Goenka said that the bank rate cut would send the right signals to the stock markets as well as to industry which was expecting such a cut. The reduction in the CRR, Goenka said in a statement issued here today, will release Rs 8,000 crore into the system immediately and would induce banks to cut deposit and lending rates.
However, Goenka said that if the Reserve Bank of India (RBI) had reduced the margin requirement on bank financing against shares from 40 per cent to 25 per cent, it would have boosted the sentiment in the capital market.
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In another statement, Federation of Indian Chambers of Commerce & Industry president Chirayu Amin said: "The overall monetary policy stance of providing adequate liquidity for growth and revival of investment demand, flexibility in interest rate regime, maintaining option for further reduction in interest rates will greatly help the economy to overcome the present slackness."
Amin said in the statement that he expects the bank rate cuts to lead to cut of at least 100 basis points in the prime lending rate of banks. The reduction of 200 basis points in the CRR, the Ficci statement said, will result in a release in liquidity of Rs 6,000 crore. "However, it needs to be ensured that the increased liquidity helps in increased flow of credit to the industrial sector rather than increase in investment in the Government securities," the statement cautioned.
Raghu Mody, president of The Associated Chambers of Commerce & Industry, said that RBI governor Bimal Jalan has provided the business community with what it had asked for and it was now up to industry to respond squarely. "It is an easy money policy with plenty of liquidity available for investment. This is also the right step towards full convertibility of the rupee in the not too distant future. It is also in tune with the international standards," Mody said in a statement.
While welcoming the bank rate and CRR rate cuts, Ph.D. Chamber of Commerce and Industry president Sushil Ansal said that RBI should have also cut the export credit rate across the board as the banks have different PLRs and most exporters are not benefited. Federation of Indian Export Organisations (Fieo) president K K Jain too welcomed the rate cuts but said that export credit rates be linked to the bank rate. "In case that is not possible, the rates should be linked to the PLR of 4-5 major banks like the State Bank of India and Punjab National Bank."
The FIEO chief hoped that the commercial banks will pass on the benefit of the lower bank rate in particular the reduction of CRR by 2 per cent to industry in general and exports in particular.
He said it is very necessary in view of the falling exports and the changing global scenario that exporters are provided with cheaper export credit. Whilst some banks have lowered their PLR and have brought it below 2.5 per cent for export credit, unfortunately, most of the Banks have not reduced their PLR and also the interest rates on export credit on the plea that it is not viable for them to lower the interest rates on export credit. President, FIEO therefore, suggested that to bring about uniformity in the interest rates structures the following steps need to betaken by RBI.